King Kaufman's Sports Daily

A Forbes report says the NHL has wildly exaggerated its losses. You remember the NHL, don't you? Don't you?


Salon Staff
November 16, 2004 1:00AM (UTC)

Are you enjoying the NHL season so far? I am now.

Not because of the 500-plus games that have been canceled since the owners locked out the players. I'd have ignored them anyway. Meaningless NBA basketball games played at three-quarters intensity as the leaves fall are still a pretty entertaining show. Meaningless NHL hockey games? In the dead-puck era? Wake me at playoff time.

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No, the only difference between this hockey season and any other for me is that no one's sending me e-mails asking me to please write more about hockey.

But hockey Christmas came for me the other day when Forbes magazine published its study of the league's finances. I'd been curious to see how Forbes, so consistently good at clear-eyed reporting about baseball owners' claims of penury, would handle the hockey owners' story that the league lost a combined $224 million last season and $273 million the year before.

Forbes to hockey: Yeah, riiiiiiiight.

A quick review for those of you who've forgotten the NHL exists: The league, saying it needs "cost certainty" in light of these massive losses, which means a hard salary cap, locked out the players in September until it can get one. The players union's last offer was an across-the-board 5 percent pay cut, plus a rookie salary cap; a baseball-style luxury tax, which is essentially a soft salary cap, with teams allowed to go over the limit but taxed if they do; and some revenue sharing.

The players won't negotiate about a hard salary cap. The owners won't negotiate, period. The league is thus in the process of showing its customers how little they'd miss the product if it went away, which I'm pretty sure is in the marketing textbooks in the "Bad Ideas" chapter.

The NHL's huge loss figures were derived from a league-commissioned study by Arthur Levitt, a former chairman of both the Securities and Exchange Commission and the American Stock Exchange, who said he had complete independence, and who interestingly did not return phone calls from Forbes. Levitt also claimed that his study took into account familiar sports accounting tricks such as hiding hockey revenues on the books of related companies.

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The Forbes piece, written by Michael K. Ozanian, says that the league's real losses are less than half of what's claimed: $96 million rather than $224 million last year, $123 million rather than $273 million the year before. Why? Familiar sports accounting tricks.

"The difference between what the league is stating as losses and our figures has to do with what's included as revenue," Ozanian writes. "For instance, the NHL included only half of the $17 million the New York Islanders got last year for their cable broadcasts. For Islanders owner Charles Wang, who paid $188 million for the team and its cable deal in April 2000, the economic value of owning the team certainly includes the entire cable deal."

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When sports owners talk about how much money they're losing, they're just talking about operating profits. They might be in the red or black any one year, but when the value of their franchises keeps going north, they're making money.

The average NHL franchise has increased in value 7 percent per year since its most recent sale, Forbes says. Twenty-four of 25 teams have increased in value since their most recent sale. The Islanders are the exception, and five teams were sold too recently to provide meaningful data. The average franchise value is $163 million.

In that context, franchises having an operating loss of $3.2 million a year, the league average, mostly aren't losing money. Claiming that they are is like you claiming you're losing $1,000 a month on your house because that's the amount of the check you write for the mortgage.

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Franchise values keep going north because nobody owns a hockey team and nothing else.

"Those teams going up in value despite big losses are worth more because their owners have smartly been using their teams to make money off the ice," Ozanian writes. As a prime example, he cites Los Angeles Kings owner Philip Anschutz, who bought the team for $113 million in 1995, then used them as leverage to get the go-ahead to build the $400 million downtown Staples Center, which bankers estimated would generate $50 million in operating income last year.

And Anschutz is planning a $1 billion business, entertainment and residential development around the Staples Center, the magazine reports. Jeez, the poor schlub is just starving with that money-losing hockey team weighing him down. A hockey team without which, according to Timothy Leiweke, who runs Anschutz's Kings-Staples Center holding company, the downtown development would have had no chance. Leiweke was quoted in the Downtown News four years ago. Interestingly, he didn't return Forbes' phone calls either.

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Forbes is such a sketchy, fly-by-night outfit, it's not surprising these guys aren't returning its calls.

I'm reminded of my favorite sports quote of the century so far, about Forbes' similar study of baseball's finances amid the owners' similar profit-and-loss claims during the most recent labor war in 2002. Talking about Forbes and baseball commissioner Bud Selig, Minnesota Twins infielder Denny Hocking said, "Gee, should I believe a magazine that spends 365 days a year researching finances, or a guy who has zero credibility?"

The league, whose owners and executives no doubt include a healthy number of Forbes subscribers, says the magazine is not just wrong, but irresponsible: "The Forbes article is factually inaccurate in numerous respects and is not based on any of the actual information that would be needed to support its claims," Bill Daly, the NHL's chief legal officer, told the Canadian Press. "It is nothing short of irresponsible journalism."

And then Daly gave a point-by-point account of the facts Forbes got wrong.

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Oh, wait. No he didn't.

Even using Forbes' more realistic -- or inflated, if you like -- revenue figures, owners have let player costs jump from 59 percent of revenues five years ago to 66 percent last year. The owners say salaries have tripled in the 10 years of the current collective bargaining agreement, and player costs now make up an untenable 75 percent of revenues. The other major sports' player costs range from the NBA's 58 percent of revenue to the NFL's 64 percent.

Whoever's figures you believe, it's inarguable that the owners have willingly signed their names to contracts that have sent salaries spiraling upward during a time they've been claiming huge losses. They are either one of the worst collections of businessmen ever assembled or they're liars.

Either way, why would anyone trust what they have to say about the business of hockey?

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The owners should get back to the table and bargain in good faith. They should open their books and work out a deal with their partners -- the players -- about how best to organize the game's finances.

Looked at in a vacuum, hockey has some serious financial problems. It has no real national television deal and has been unable to catch the fancy of non-fans with transcendent figures since the long-retired Wayne Gretzky. It relies heavily on ticket revenues, an unstable foundation.

But as part of a larger business plan, especially one that includes a cable network, owning a hockey team is a sound investment. The sooner the owners admit that, the sooner the NHL will return to the ice.

And if it happens soon enough, someone might even notice.

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Previous column: Artest, Clarett, NFL picks

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